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MF Global to Shut Branch Offices

By

Doug Cameron and

Aaron Lucchetti

Updated May 20, 2008 12:01 a.m. ET

MF Global Ltd. is shutting the branch-office network that left the futures brokerage vulnerable to a trading scandal in February.

Kevin Davis,
the firm's chief executive, is expected to announce the move and an update on its capital-raising plans when the firm reports earnings Tuesday. In addition, MF is close to hiring a global chief risk officer, he said.

MF Global is the world's largest independent derivatives brokerage. But allegedly unauthorized trades by Evan "Brent" Dooley, a representative in its Memphis, Tenn., office, undermined the firm's reputation for careful risk management, wiped out most of its fiscal-year earnings and threatened to unleash an exodus of customers and staff.

Mr. Dooley has left MF Global, and he and his lawyer haven't commented beyond his initial statement in February, when he blamed the loss on computer systems he was using. The systems "failed on a lot of things," he said, including "setting limits."

Loss of $141.5 million from those trades dented valuations across the derivative-trading sector. MF Global stock, down 52% this year, was up 52 cents, or 3.6%, to $14.98 at 4 p.m. in New York Stock Exchange composite trading.

"We've not felt much at all in terms of business degradation," Mr. Davis said. Fewer than 3% of the firm's clients left after the scandal. MF Global had a net inflow of business in April compared to March, when concerns about its financial health peaked.

The Memphis office already has been closed, along with roughly half of the other U.S. branches. MF Global said the closings would have a minimal impact on revenue and make it easier to manage risks at its main U.S. offices. MF Global also has hired two teams of consultants to review its risk-management systems. The company is continuing to pursue the sale of $200 million or more in capital, likely through convertible securities that blend characteristics of stocks and bonds.